How Does Leverage Relate to Margin Requirements in Futures Trading?
Leverage is the ability to control a large futures contract value with a relatively small amount of capital, which is the margin. The margin requirement determines the maximum leverage available.
A lower margin requirement means a trader can take on a larger position size relative to their capital, thus increasing leverage. High leverage amplifies both potential profits and potential losses.
Exchanges set margin requirements conservatively to limit systemic risk.
Glossar
Futures Contract Value
Definition ⎊ Futures contract value represents the current economic worth of a standardized agreement to buy or sell an underlying asset at a specified price on a future date.
Margin Requirements in Futures
Requirement ⎊ Margin requirement in futures refers to the minimum amount of capital that a trader must deposit and maintain with a broker or clearinghouse to open and hold a futures contract position.